Manufacture through job work and limitation rules restricted excise demand after withdrawal from special clearance procedure.

Conversion of forged crankshafts into finished crankshafts through outside job workers amounted to manufacture because a distinct excisable product came into existence. While the assessee remained the manufacturer for Rule 56B clearances up to 15-1-1983, that status did not continue after withdrawal from the special procedure, as no dummy or facade arrangement with the processor was shown for later clearances. The demand was also limited by the absence of suppression or misstatement, so the extended period could not apply and recovery was confined to the normal six-month period. The matter was remanded for reworking the demand and reconsidering refund claims on that basis.

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Issues: (i) whether conversion of forged crankshafts into finished crankshafts through outside job workers amounted to manufacture and whether the assessee was the manufacturer for excise purposes; (ii) whether the demand was barred by limitation.

Issue (i): whether conversion of forged crankshafts into finished crankshafts through outside job workers amounted to manufacture and whether the assessee was the manufacturer for excise purposes

Analysis: The processing carried out by outside job workers brought into existence a finished crankshaft distinct from the forged input, and therefore manufacture occurred at that stage. So long as the assessee was operating under the special procedure for removal of semi-finished goods under Rule 56B of the Central Excise Rules, 1944, the clearances up to 15-1-1983 were to be treated as clearances by the assessee for duty and exemption-limit purposes. After withdrawal from that facility, the assessee was not shown to have retained such nexus with the outside processor as would make the processor a dummy or facade, and the assessee could not be treated as the manufacturer for the later clearances merely because the goods were brought back for oiling and packing.

Conclusion: The assessee was the manufacturer up to 15-1-1983 for purposes of Rule 56B clearances, but not for the later clearances after withdrawal from that procedure.

Issue (ii): whether the demand was barred by limitation

Analysis: The record showed no suppression or misstatement. The assessee had acted with the department's knowledge while using the special procedure and had also withdrawn from it by correspondence. In these circumstances, the extended period could not be invoked and any demand had to be confined to the normal period of six months preceding the show cause notice.

Conclusion: The demand was held to be time-barred beyond the normal period of six months.

Final Conclusion: The matter was sent back for reworking of the demand and reconsideration of the refund claims on the basis of the clearances up to 15-1-1983 and the normal period of limitation.

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